Atul Joshi, Managing Director & CEO Thursday, November 15, 2018 Union Budget FY16 Atul Joshi, Managing Director & CEO Thursday, November 15, 2018

Macroeconomic Context before FY16 Budget Domestic Context Fiscal Health/ Public Finance Low revenue base and high committed expenditure Inflation Food inflation declining but food inflation still a challenge Infrastructure Infrastructure deficit adversely impacting productivity and competitiveness of the economy Manufacturing Reviving manufacturing critical for creating employment opportunity Currency and Balance of Payment CAD as of now low, but will remain a risk Global Context India not immune to global development … Global financial 2008/ Eurozone debt crisis Geo-political upheaval impacting oil prices Global GDP/ Trade growth

Union Budget FY16 - Highlights Fiscal/ Public Finance Fiscal deficit for FY16 pegged at 3.9% of GDP Roadmap for fiscal consolidation outlined (3.5% and 3.0% in FY17 and FY18) To set up public debt management agency Inflation Average consumer inflation to be 5%-5.5% in FY16 will open room for more monetary policy easing Monetary policy framework agreement with the RBI to keep inflation below 6% Growth GDP to grow at 8-8.5% in FY16 Aim is to grow at double digit soon 11/15/2018

Union Budget FY16 - Highlights Infrastructure Investment in infrastructure to go up by INR700bn in FY16 over last year To set up ‘National Investment Infrastructure Fund’ To allow foreign investment in alternative investment funds Tax-free infrastructure bonds for projects in roads, rail and irrigation projects 5 ‘ultra mega’ power projects of 4000 MW each Plan to build additional 100,000 km of road Ports in public sector to be corporatise under Companies Act Policy Reforms Comprehensive new law on black money Create a universal social security system To bring a new bankruptcy code To introduce a public contract resolution of disputes bill 11/15/2018

Union Budget FY16 - Highlights Manufacturing Goods and services tax by April 2016 Basic custom duty on commercial vehicle doubled to 20% Reduction of custom duty on 22 items To cut corporate tax to 25% over next four years (effective corporate tax in FY14: 23.22%) Anti-tax avoidance rules GAAR deferred by 2 years and to apply prospectively from April 1, 2017 A national skill mission to consolidate skill initiatives spread across several ministries to be launched. Online central excise and service tax registration to be done in two working days 11/15/2018

Current Expenditure Consistently Higher than Current Revenue 11/15/2018

Fiscal Deficit Has Improved … 11/15/2018

….but not the Quality of Fiscal Deficit 11/15/2018

FM announced incremental investment of INR700bn Budget numbers do not show this….. 11/15/2018

Net Tax/GDP Still on a Declining Trajectory 11/15/2018

Disinvestment Fallen Way Short of Budget Estimate 11/15/2018

Current Exp Moderating but Capital Exp Flat… 11/15/2018

Marginal Decline in Subsidies 11/15/2018

Interest Payment Continues to be Very High… 11/15/2018

Sustainability of Debt is Under Pressure.... Debt is Sustainable so long as the Rate Spread (nominal growth net of interest rate on debt) is significantly higher than primary deficit (fiscal deficit net of interest payment). This has been the situation between FY05 and FY08. 11/15/2018

Expenditure Reform Not Easy…… 11/15/2018

In Sum Economy to Improve in FY16 Key Indicator Trend in FY15 GDP Growth To Improve - Agriculture Growth To Decline (Base Effect) - Industrial Growth - Services Growth Fiscal Deficit Marginal Decline Currency To Appreciate Benchmark Yield (Interest Rate) To Decline Current Account Deficit To Expand Inflation 11/15/2018

India - Economic Outlook - FY15  Key Indicators 2012-13 2013-14 2014-15* 2015-16F* Real GDP factor cost (y-o-y % growth) 4.5 4.7 5.6 6.5 Agriculture 1.4 1.9 2.0 Industry 1.0 0.4 3.6 Services 7.0 6.8 7.3 7.4 Average Inflation (WPI) 5.9 2.7 2.8 Average Inflation (CPI) 10.2 9.5 6.4 6.0 Exchange rate (INR/$ March end) 54.39 59.6 61-62 63** Year End Interest rate (10-year G-sec) 8.01 8.8 7.4-7.5 7.1-7.2 Current Account (% 0f GDP) 1.7 2.1 2.2 Fiscal deficit (center, % of GDP) 4.9 4.2 3.9 Gradual recovery * Ind-Ra Forecast ** Average for FY16